Landlords and coronavirus (COVID-19)
How has Covid-19 changed the letting landscape for UK residential landlords? There are many implications of this disease from protecting the health of your tenants to dealing with a raft of new legislation effecting how you deal with the very real economic problems of tenants and non-payment of rent.
What are the new Covid-19 landlord laws?
Since the Covid-19 lock down I have like many landlords being waiting with great trepidation for the 1st of April – not because I’m expecting somebody to drop a ‘whoopie’ cushion on me – no because it’s the first rental period since the lock down and more importantly the introduction of the section of the Coronavirus Act 2020 that specifically protects tenants from eviction during the coronavirus outbreak.
Many landlords are fearful that this Act could turn out to be a rent dodgers charter. Where tenants were failing to pay rent or looking for an excuse not to this is the perfect shield and excuse for them to stop paying rent altogether. The legislation surrounding coronavirus has extended the notice periods for tenants from 2 to 3 months until September 30th 2020. This notice period can then subsequently be extended to 6 months. If you are in the process of seeking possession then this will be suspended for at least 90 days from the 27th March 2020. The result of all this my landlord friends is that landlords will not be granted a possession order until June 2020 at the earliest.
Can I evict my tenant if they stop paying rent because of Covid-19?
The simple answer to this is NO. As we can see from the new legislation introduced above you just can’t. That is the new law whereas previously the non payment of rent for 2 months was one of the mandatory grounds for possession. The new Coronavirus Act changes all this.
Can landlords stop paying their buy-to-let mortgages?
There is nothing in statute that says a landlord can stop making their monthly buy-to-let mortgage payments because of coronavirus; but government guidelines have indicated that a ‘payment holiday’ of up to 3 months has been agreed with banks where there is a potential financial hardship. This could be where for instance a tenant is unable or stops making rental payments. To benefit from the so called ‘payment holiday’ then most lenders require landlords to make an applications; normally through their website requesting the deferral of the mortgage payments for up to 3 months. These applications generally take about 10 days to process.
Should a landlord accept a reduction in rent?
If you can’t evict you tenant because they can’t or won’t pay their rent then should a landlord accept a reduction in the rent? The Government in their advice to landlords, tenants and local authorities are still advising tenants to pay their rent whilst they are able and if not to talk to landlords. I have heard one landlord being approached to see if they can have a permanent reduction in their rent because of the crisis. I would advise against making a permanent change to the tenancy and the rent even where the tenant threatens non payment. Where a landlord does receive less than they were expecting they should make it clear to the tenant that the rent has fallen short and whilst you might accept temporary under payments because of the tenants financial situation; the rent is still due and once the current situation has resolved that balance payment of rent will still be legally due. This is where keeping or having access through your bank account and a system of book keeping for your rent comes in handy should the need arise to go to court to make a claim for unpaid rent. For portfolio landlords with tens or hundreds of rental properties keeping track of missed payments can become a ‘nightmare’ unless you stay on top of the whole accounting process.
As always when dealing with missed or part payment of rent a landlord should manage the situation carefully. Remember in the current climate there is a lot of genuine hardship and so an understanding tone is good. Where payments are missed pick these up early and don’t ignore the situation. Where possible try and set up a payment plan that the tenant can agree to and stick to. For example 50% of rent is much better than none at all because this means going forward the tenant will only have to find 50% more rent not 100% of the missed payment once normal service resumes.
I know that in London there is now an issue where short term rental through the likes of Airbnb have flooded the rental market because they can no longer let them out to holiday makers. This big and unprecedented growth in rental properties is obviously having a short term impact on depressing rents in certain areas of London. If landlords do need to rent their properties quickly then they may need to drop rents accordingly. If not and you are able or prepared to tough it out then you could keep your rents at previous levels. The good news is long-term rents in the private rental sector keep on growing above the rate of inflation.
Can landlords obtain any compensation because of coronavirus?
Renting out property is considered to be an investment rather than a business so where as if you are letting out a furnished holiday let and correctly being registered for business rates then you can access pots of funding through the various grants and loans available to businesses. However, for landlords, even large portfolio landlords there is no financial assistance available because of the historic anomaly that residential property investing is seen as an investment activity rather than a business. This increasingly seems anachronistic given that somebody could own a single holiday let which is seen as a business whilst a landlord running a portfolio of 100 rental properties is not. Some landlords who obtain most of their income through their residential investment properties have created their own property rental agency which is considered by HMRC as a business. This business is at arms lengths to the investment portfolio which is charged a management fee. In this situation landlords would be able to claim certain of the grants and loans where applicable. It is however a grey area whether a portfolio landlord could be considered to be self employed even if their main income is from their rental properties. It may be a case of persuading the local council of this situation despite a considerable amount of case law suggesting otherwise.
Will landlords go bust because of coronavirus?
It goes without saying that if support for landlords is limited then there is a real chance that a significant number of landlords will go bust because of the impact of coronavirus. I know that some new landlords in an attempt to get into property investing have been led down the route by some property gurus of buying property using loans sourced at any cost including using credit cards. This system of buy-to-let finance can work – in the good times – if all goes well. However, some landlords who are swimming in debt are going to face a real struggle to pull through this crisis. This is because as is always the case when the economy goes into shock is that all lenders retrench, lend less, it costs more and are more selective on who and how they lend as they seek to shaw up their balance sheets and mitigate their risks of loans going bad. So if a landlord is over extended now then the chances of getting extra credit if for instance a development project takes longer, or tenants stop paying gets less. Inevitably, some landlords will go pop in a hail of debt. For most of us it’s a case of ‘muddling through’. Experienced landlords are good at this and for new landlords ….you’ll learn.
Is coronavirus a buying opportunity for landlords?
Like any financial shock the coronavirus pandemic is going to present real opportunities. We know as landlords that the UK is still not providing enough accommodation to rent and we are still not building enough new homes to match demand. Cash is king – so landlords who have just sold a property or have got access to funds are going to be in a prime position to our to their property investment portfolios. It’s going to be all about having financial fire power in these situations so having access to a good mortgage broker and some good buy-to-let mortgages. Bridging finance is another option if you need to act fast. In the current climate I can see that there will be some motivated sellers. These are individuals that because of their financial situation are motivated to sell fast and potentially below market value (BMV). Unfortunately, the obstacles to landlords securing these deals is that the government has now prevented viewings of properties so if you need to have a look at a potential property investment then this will delay any deal. However, if a landlord has already viewed the property or they are happy to make an offer on the basis of seeing it on the internet or from the outside it is still possible to conclude a property investment deal despite the new coronavirus restrictions. The challenge then comes in being able to be able to contact the estate agents if they are still working and then ensure that your solicitor is able to handle the case and that the sellers solicitor is also responsive. I have heard of one landlord buying an empty property which is acceptable and the purchase of the investment is proceeding at double the speed because there is no mortgage involved and the solicitors are able to focus on a reduced workload. If you do have an investment opportunity in the pipeline then now could be a good time to get a good deal.
What are the landlord associations saying about coronavirus?
Landlords associations are in a difficult position over coronavirus as they have to balance their advocacy of landlords interest which is basically that we all still want to receive our rent with the fact that they do not want to appear to be advocating full scale evictions of tenants. In fairness to tenants there are many who were happy to pay rent until coronavirus struck and have now lost their job or business income.
Hence the NLA & RLA’s most recent statement:
“The NLA and RLA recognise that these are unprecedented circumstances, and it is vital that tenants remain secure in their homes if they are adversely affected by coronavirus and the restrictions advised by the Government.
However, we believe a blanket suspension of all claims is too wide reaching. Suspending all possession claims provides no protection to neighbours where some tenants engage in anti-social or criminal behaviour for example.
We welcome the Government’s work to gain support for a mortgage holiday from buy to let lenders, but they must go further to protect tenants’ incomes and reduce the impact on individual landlords. Ultimately, the best way of avoiding future financial problems for tenants is by ensuring that their income is uninterrupted as much as possible.”
Can landlords get a mortgage after coronavirus?
Following the coronavirus outbreak the number of buy-to-let mortgages has slumped big time. This is as lenders take the top and the defensive position of restricting lending and preserving capital whilst they evaluate the tightened risk of defaults on their existing mortgage book before they start opening themselves up for additional risks.
In recent days we have seen a number of big buy-to-let lenders exit the market entirely as they look to retrench and let the dust settle. Tracker mortgages that are linked to the bank base rate have also been taken off the market by many lenders as the governments emergency economic package including cutting the interest rate to 0.1% on the 19th March the lowest level in history make economic lending more difficult. Lenders are also cutting the higher Loan to Value advances (LTV) so be prepared for the 85/80 and even the 75% LTV to start to disappear.
Where lenders are still prepared to lend landlords should expect increasing real interest payments, higher fees and overall a tightening of lending criteria and buy-to-let lender attempt to de-risk and increase the quality of their lending book.
Is is possible to insure a landlord against coronavirus?
No off course not! Insurance companies are very clever to exclude certain risks such as a weird Chinese bat flu like coronavirus. Where a landlord can protect their financial position is indirectly through rent guarantee insurance. This means that if the tenant does stop paying the rent then the landlord will still continue to receive the rent from the insurance company pending the potential eviction of the tenant. However, many providers of rent guarantee insurance have also pulled their policies because of the sudden and dramatic increase in the chances that it is invoked by landlords.
How do landlords keep tenants safe from coronavirus?
The main thing with coronavirus is social distancing to prevent the spread of the disease between tenants. Any socially responsible landlords should already know that they should avoid overcrowding in their rental properties. Where this gets difficult is in Houses in Multiple Occupation (HMOs) where tenants are living together as a single artificial household. This means that the opportunities for cross contamination of the virus are much greater.
The main times that both landlord and tenants and potential tenant could be a risk i.e. they meet are when:
1. the rental property needs some aspect of repair
2. the tenant is potential moving out and a landlord needs to carry out the check out
3. a landlord is looking at letting out the property and needs to conduct viewings
1. Landlords repair obligations with Covid-19
The repair obligations set out in the implied statutory applied terms and the terms of the rental agreement have not been changed by the Coronavirus Act or advice as a result of COVID-19. The main consideration is where a landlord does need to visit the rental property is to ensure that they socially distance and don’t touch any of the surfaces. Hand washing before and and after is also a prerequisite of any repair visit to the rental property
2.Tenancy Check Out
Where the tenant is about to move out and you need to carry out the check out procedure to end the tenancy then the advice above again applies
3. Letting a property during the Covid-19 outbreak.
There are no restrictions on letting a property during the outbreak other than many letting agents offices are shut. The great thing now is that you can virtually carry out a letting almost entirely online. The whole process of advertising your property for rent on one of the number platforms like LettingAProperty. Once up you can screen all the potential applicants and whittle them down to a small number of tenants that you want to meet personally. Once you have a list of potential tenants then it might be advisable to:
1. stagger the viewings
2. keep a sensible distance from the prospective tenant
3. leave doors open where possible
4. thoroughly detox any handles and surfaces before and after viewings
Other than all this the process of letting your valuable buy-to-let continues as normal.
COVID-19 and the Coronavirus Act has changed everything for landlords. But you know what?
All we can do is carry on and get through it. Best of British boys and girls and ….carry on.